As Gulf Economies Shrink, Foreigners Are Jumping Ship

Without their giant expat populations, the economic future of the Gulf region looks dimmer than ever

By David Rosenberg, HAARETZ

One way to look at the economies of the Gulf is like a ship floating on a sea of oil. Taking the metaphor further, the crew running this giant vessel are overwhelmingly foreigners.

Expats make up close to half the population of the Gulf countries, in some cases close to 90%. They are the ones who build the luxury homes, showcase skyscrapers and giant shopping malls. They are the only ones who wait tables at the restaurants and clean the rooms at the hotels. Further up the labor ladder, expats run the banks and property companies, serve as doctors, and teach at the universities.

The crew is jumping ship. A report by Oxford Economics published this week estimates that employment in the Gulf Cooperation Council countries, which includes Saudi Arabia and six Arab emirates, could fall by as much as 13%. And, because expats make up such a large part of the population, the exodus will actually cause the GCC’s overall population to shrink. In Saudi Arabia the population could contract by about 4% but in the United Arab Emirates and Qatar it could fall by more than 10%.

That’s the kind of population decline a country might see in the case of a devastating war, and it threatens to have the same economic impact. But before we get into the impact, let’s look at the origin.

Slipping on cheap oil

The first is oil prices, which have collapsed in the face of oversupply and plummeting demand due to the coronavirus. Oil pays the region’s bills and is financing the ambitions of local rulers to turn their countries into centers of trade, technology and tourism. These days, however, oil’s not bringing in close to enough money to do any of that. Saudi Arabia’s government, for instance, needs oil to be about $76 a barrel to break even on its costs, more than twice the current price.

Cheap oil as been wreaking havoc on the Gulf economies and has been causing expats to pack their bags for some time. The coronavirus has turned a steady trickle into a potential flood, because many foreigners work in the non-oil sector, and that has ground to a halt from lockdowns and the collapse of global tourism. The International Monetary Fund forecast in April that the GCC economies would contract 2.7% this year and non-oil activity will contract by an even sharper 4.3%.

If the expats were citizens, they would tough it out, if for no other reason than the economies everywhere are going south. But they’re not citizens, even if they have lived and worked in the Gulf for years. Not only is there no social safety net for them once they’re unemployed: in ordinary times a foreigner without a job is booted out of the country.

The Gulf countries are anxious enough about the exodus and its economic implications to have granted grace periods for jobless expats and take other measures to stem the exodus. But Oxford Economics says that once coronavirus travel restrictions are eased, the expats will be heading home – first low-skilled workers, then skilled professionals.

The irony is that the Gulf countries have been trying to wean themselves off foreign labor for some time. But on the whole, their attempts to force the job market to go native haven’t worked. Locals prefer government jobs, where the pay is better, the hours undemanding and no one gets fired. No-one is going to trade a job as even a low-level ministry clerk to work as a chambermaid or construction worker. Governments aren’t so keen either, since this kind of downward mobility risks sparking social unrest.

In any case, after years of investing in their human capital, there’s little evidence that any of these countries stand a chance of building themselves into international tech or financial centers based on local talent. They need expats and they need them in large numbers.

In the case of the tiniest emirates, they simply don’t have enough natives to sustain prosperous diversified economies. There wouldn’t be enough consumers to shop at the malls, eat at the restaurants and work out at health clubs. Without lots of expats, it looks like a downward economic spiral for the Gulf.

Can the Gulf avoid such a dismal fate? It would probably require that oil prices stage a strong as well as a sustained recovery that leaves them higher than they were before the current crisis. No less important, it would require that the coronavirus pandemic comes to a decisive end.

The odds of both crises coming to such happy conclusions are pretty slim. Conversely, the odds that they will conspire to lead to another round of unrest in the Middle East and the Gulf – an Arab Spring II – are better. Indeed, the expat exodus is going to leave a lot of Arab countries grappling with returning workers looking for jobs that aren’t there.

How much better the odds are of an Arab Spring II happening is anyone’s guess. But even if the region stays quiet, the Gulf will no longer be the land of opportunity it was for so many decades.

June 2, 2020 | 4 Comments » | 1,133 views

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4 Comments / 4 Comments

  1. Perhaps this is why the Gulf states have been quietly cozying up to Israel, and why Dubai at any rate, has allowed Jews to resettle in the country and even build a synogue and kosher catering facility. Jewish tourism and investment is a possible alternative revenue source. The Israeli tech wizards and start-up entrepreneurs may also be able to help the Gulf states create alternative industries to oil. This is probably on the minds of the Gulf rulers as they struggle to survive.

  2. It may seem crazy, but the Gulf states do have a possible way to recoup their financial losses. That would be to form a cartel with the major international petroleum companies, including the big American companies, to jack up prices. While this may seem absurd at first glance, the international oil companies have been hurting badly as a result of the CV-2 crisis, and they may therefore be willing to cooperate with the Gulf rulers to accomplish this. American and European oil companies also own a lot of stock in the Gulf oil companies like Aramco, and own many of the oil wells Gulf rulers. The Europeans still rely partially on oil from the Gulf for their own petroleum needs, and may be forced to pay higher prices.

    As the lockdown ends and people start using their cars more, consumers can be forced to pay higher prices. This will make them angry, of course. But the oil companies could do an advertising campaign saying that they are forced to raise prices because they lost so much money during the lockdowns. The demand for petroleum is “inelastic” in countries where people depend on their cars for transportation. And so they will grudgingly agree to pay up.

  3. Oil prices today were at $35 barrel a significant increase. Supplies have been lowered is part of the reason for the price increase. The reason is that economies have started opening up increasing the demand a bit for oil and gasoline.

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